Calculating Income Tax could get confusing, especially when you talk about the estimates of taxes. You can evade the arduous efforts involved in these calculations, by using the Income Tax Calculator, which is easily available online. However, to reduce tax liabilities, you must have a clear understanding of the process of tax computation.
Income tax is the amount of money you’re liable to pay in the form of tax, which depends on the tax slab you fall under, as per your income. Tax is computed on the gross total income, which is a sum of all heads of income, involving Salary Income, House Property Income, Capital Gain Income, Business/Profession Income, and Other Incomes. You must also be aware of the Rules of getting income tax exemption. it is advisable to take help from a tax professional for this.
Importance of Identifying Residential Status Before Computing Taxes
The residential status of the person and the age of the resident are the two things that must be noted before starting the computation of taxes. Residential status helps us identify whether a person is a resident or a non-resident and depending upon the same the slab rates are applicable. The quantum of time a person stays in India shows the residential status, i.e.,
- For a person to be a non-resident, the following two points must be considered:
- Stay in India is less than 182 days in a financial year, or
- Stay in India is less than 60 days or less than 364 days in the last four years proceeding previous year.
- Any person who is not a non-resident is a resident.
For identifying the residential status of companies, domestic or foreign, their registered office and the place of the general meeting is taken into consideration.
Once the residential status is identified, the age must be noted because as per the Income-tax Act, a resident is categorized into three slab rates based on the age,
- Individual,
- Senior citizen (attained 60 years or more age but less than 80 years in the previous year), and
- Super senior citizen (attained the age of 80 years or more in the previous year).
For HUF, the age of Karta is taken into consideration for tax purpose.
We can categorize a person easily once the residential status and age is accurately identified. Based on this the person is charged to a particular slab rate as per the Income-Tax Act.
How is Income Earned from Capital Gains Taxed?
Capital gains are the profits resulting from the sale of capital assets, such as stocks, bonds or real estate. In case of capital gains, the selling price is usually higher than the purchase price. These may either be long-term or short-term gains. Hence, the income earned from capital gains are taxed separately, and not as per the slab rates. Here’s how these gains are taxed:
- Long-term Capital Gain u/s 112 – Taxed at 20%
[*Exempt- Long Term Capital gain u/s 10(38)]
- Short-term Capital Gain u/s 111A – Taxed at 15%
Basic Structure of Income Tax
There are several different components involved in Income Tax. Before you calculate the Income Tax, here’s a look at the basic structure:
| Particulars | Amount |
| Gross Total Income:
1.Income from Salary 2. Income from House Property 3. Income from Capital Gains 4. Income from Business and Profession 5. Income from Other Sources |
xxxxxx |
| Less: Deductions under Section 80C to 80U | (xxxxx) |
| Less: Standard Deduction (if applicable) | (xxxx) |
| Net income chargeable to tax | xxxxxxx |
| Tax liability calculated as per the applicable slab rates | xxxxx |
| Add: Surcharge | |
| Add: Education and Secondary Education Cess | xxxx |
| Tax liability | xxxxx |
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